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Archive for Tuesday, November 22, 2011

Prices shoot up for Midwest crop land

A farmer in his combine makes a pass through a field in the river bottoms Monday just north of the Kansas River. Crop land prices in the Midwest have risen by more than 25 percent during the last 12 months, a new report by the Federal Reserve Bank of Kansas City has found.

A farmer in his combine makes a pass through a field in the river bottoms Monday just north of the Kansas River. Crop land prices in the Midwest have risen by more than 25 percent during the last 12 months, a new report by the Federal Reserve Bank of Kansas City has found.

November 22, 2011

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Midwest farmers are certainly growing corn, wheat and soybeans, but now there are questions about whether they’re nurturing a real estate bubble as well.

A new report by the Federal Reserve Bank of Kansas City found that crop land prices in the Midwest have risen by more than 25 percent during the last 12 months. It was the highest rate of increase ever monitored by the Kansas City Fed.

“There are people out there looking for alternative investments to the stock market right now,” said Kelvin Heck, a broker with Lawrence’s Colliers International. “Land is still something they aren’t making any more of, and I think some people are buying it just like gold as a hedge against bad times.”

The Federal Reserve report estimated that in Kansas, non-irrigated crop land increased by 20 percent for the year, irrigated crop land by about 15 percent and pasture land by about 12 percent.

In the Douglas County area, the market is more mixed. Heck said the market for fertile bottom ground in the Kansas River has been active, and prices likely have been increasing near the rates suggested by the Federal Reserve.

But the price for less fertile property outside of the river valleys has seen less of an increase, said Dale Bohn, an appraiser with Frontier Farm Credit. Bohn said those types of properties have been hurt by the slowdown in new housing growth. That’s because many of those type of properties in Douglas County aren’t just bought as farm land but also are used for rural housing.

But Bohn agreed with the Fed’s assessment that land being bought for truly agricultural purposes is increasing rapidly in value.

“We’ve been seeing some record income levels for farming the last few years,” Bohn said.

Strong commodity prices, especially for corn during the ethanol boom, have helped drive up land prices. The Fed noted that Nebraska has seen crop land values increase by about 40 percent for the year.

Heck said he had heard reports of even more rapidly increasing prices in Iowa, saying that some bottomland in Iowa has sold for $16,000 an acre. For comparison, Douglas County bottomland is more likely to sell for about $4,500 an acre, he said.

The rapid increase has some in the agricultural industry watching the situation closely and hoping that a 1980s-style agriculture bubble doesn’t emerge. Lenders said the agriculture industry is far less leveraged than it was in the 1980s, which is leading many to hope that any bursting of a bubble won’t be as devastating as it was 30 years ago.

“But the pendulum always swings too far in these sorts of things,” Bohn said. “I don’t know how far agriculture land values have to rise before it happens — it may be 5 percent higher or 50 percent higher — but it will get to the point that the pendulum swings the other way.”

Tom Dillon, president of Baldwin State Bank, said he thinks area farmers aren’t likely to drive up land prices too much in the coming year. He said area farmers did not have a particularly good year in 2011 because of the dry conditions.

“If they would have just grown an average crop they would have been sitting pretty right now,” Dillon said. “But they didn’t get the rain when they needed it, and based on what has gone on this fall, I don’t think you’ll find many farmers real optimistic about next season either.”

Comments

Clint Church 3 years, 1 month ago

"For comparison, Douglas County bottomland is more likely to sell for about $4,500 an acre, he said."

Unless you are the county in which case you pay $35,000 an acre.

dontsheep 3 years, 1 month ago

Heard this morning that farmland is now the investment of choice for hedge fund managers. Not a good sign for what's coming.

just_another_bozo_on_this_bus 3 years, 1 month ago

Yep-- almost nothing has been done to stop the ability of Wall Street to speculate on whatever they like. They make some quick $trillions on whatever the current bubble is, and when it bursts, everyone else picks up the tab.

And people wonder why Occupy Wall Street is out there?

imastinker 3 years, 1 month ago

You think people shouldn't be able to make money by buying things?

Jeff Kilgore 3 years, 1 month ago

You're avoiding his point. The point, since it has to be spelled out for you, is when Fraud Street speculates and then loses, Fraud Street, and not the American taxpayer, should foot the bill. Where have you been in the past three years?

Also in this explanation is a textbook example of comma usage.

beaujackson 3 years, 1 month ago

Wonder how this will affect farmland taxes?

1983Hawk 3 years, 1 month ago

It won't affect farmland taxes at all. Ag land is taxed under a special "use value" formula wherein the land is valued not at all relative to its fair market value but instead on the average productivity of the land over the preceding 8 years, with special parts of the formula cooked (like an artificially high capitalization rate) to assure that the final assessed value for property tax purposes is ridiculously low. So while you pay property taxes based on full fair market value for your house, and the business down the street pays property taxes based on full fair market value, keep in mind that you are paying much higher taxes than you otherwise would because the ag boys have got such a sweet deal.

Moreover, they get to have their cake and eat it, too, because the low values (and low property taxes) for ag land make the rural school districts look that much poorer for purposes of the K-12 school finance formula, enabling them to extract that much more in terms of their general state aid entitlement (which comes primarily from taxes paid by people in urban areas).

imastinker 3 years, 1 month ago

Sounds about right. My ag land is less than $20/yr per acre for taxes.

blindrabbit 3 years, 1 month ago

Did I miss the results; what was the auction selling price of the two Pine Family Farm pieces that were recently auctioned near the Lawrence airport? Each parcel was about 60 acres if my memory serves me correctly.

verity 3 years, 1 month ago

If I'm analyzing this correctly, it means that investors, rather than farmers, are buying up the land and pushing up the prices. This is never good because it means that farmers can't afford to buy land---they have to look at the price as compared to what their profits will be from farming it---or they get themselves so far in debt that they lose their farm. I've seen this before---land prices going up to a point where they couldn't be sustained. A lot of farmers went bankrupt that time.

Eventually the bubble will burst---or you will be paying a lot more for food.

Hopefully, when the bubble bursts, the speculators will end up selling the land back to farmers at a much lower price.

And those of you complaining about the farmers paying lower property taxes---if they paid per acre what you pay for your lot in town, either nobody could afford to farm or food prices would be way higher than most of us could afford.

imastinker 3 years, 1 month ago

You're taking too simplistic an approach to it. Farmers are investors too. If in fact hedge funds are buying farm ground more than normal (they have been doing this forever), they are probably having it custom farmed or cash renting it. The price of farm ground is a factor of the value of the commodity it produces, just like any other good.

This happened in the 80's too. It was bad for the farmers then too, but a weak dollar and high interest rates caused it. It's coming again.

verity 3 years, 1 month ago

"The price of farm ground is a factor of the value of the commodity it produces, just like any other good."

I could be wrong, but I don't think that is always true. Speculation by definition is based on what somebody thinks/hopes will happen, not necessarily on what is happening right now. Yes, farmers are investors, but the traditional farmer doesn't have many or any other investments to fall back on. When the farmer miscalculates, he/she is stuck with trying to find a scarce job and giving up a lifestyle which you pretty much have to love in order to keep doing it.

As I recall, in the 70s and 80s, the Federal Land Bank pushed farmers to take on more debt, which inflated the land beyond what it was worth in terms of income, and then began foreclosing on these same farmers, blaming them for taking on too much debt. (Sounds strangely like the housing bust.) Fortunately for my family's farm our area was in drought at that time and so land prices had not inflated as much as in many other areas and not many people lost their farms.

Keith 3 years, 1 month ago

"Eventually the bubble will burst---or you will be paying a lot more for food."

I'm betting on both.

Jeremiah Jefferson 3 years, 1 month ago

Don't forget the hunting boom.. Recreational use of land used soley for the purpous of hunting isn't helping matters. Gota love wealthy guides, outfitters and non-resident hunters who buy up and lease all the ground they can get their hands on. Shows and companies like Whitetail properties, Cabela's trophy properties and Big Buck properties make me want to puke.

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